SDG&E-Edison merger faces additional setbacks

San Diego Business Journal, Feb 19, 1990 by Anne Middleton

SDG&E-Edison merger faces additional setbacks

Those rooting for and against the proposed $2.5 billion merger of San Diego Gas & Electric Co. and Southern California Edison have radically different interpretations of recent announcements critical of the proposal.

Merger critics view state Atty. Gen. John Van de Kamp's recent opposition of the proposed merger as a victory, strengthened by a Public Utility Commission staff report a day later. The PUC's Division of Ratepayer Advocates charged in a Feb. 8 report that the merger, as structured, should be rejected because it would not produce long-term benefits for utility customers. The report also said the merger would worsen Southern California's air quality and cause severe antitrust problems.

"It (DRA report), coupled with Van de Kamp's decision to oppose the merger, is a one-two knockout punch," said Michael Shames, executive director of Utility Consumers Action Network, a San Diego-based consumer group that opposes the merger. "I would not want to be in the Edison boardroom now. This could not be good news for them."

Merger foes also view comments by a U.S. Justice Department attorney as a good omen. On the opening day of hearings before the Federal Energy Regulatory Commission last week, Justice Department attorney Donald A. Kaplan said his department has "serious concerns as far as the impact of this merger on competition and economic efficiency."

The Justice Department comments were merely routine, claims Lew Phelps, vice president of corporate communications for Edison.

"It means they (Justice Department officials) have some things to look at," Phelps said. "That's their job."

Greg Barnes, the SDG&E attorney handling the case before FERC, said Justice Department "concerns" mean the federal agency will investigate the proposed merger as it would any merger. Barnes also viewed as positive Kaplan's telling FERC administrative law judge George P. Lewnes that the Justice Department had not "formulated its position" on whether to support or oppose the merger.

"For people who are hoping for a (Justice Department) stance or position against the merger that had to be a very disappointing day," Barnes added.

Officials from both Southern California utilities dispute claims of victory by merger foes, such as UCAN, the Coalition for Local Control and the city of San Diego.

Van de Kamp's opposition to the merger is "political posture," aimed to stir interest in his race for the governorship of California, said Bill Reed, SDG&E's director of regulatory affairs.

As for Shames' contention that the announcements provided a "`one-two knockout punch'...That's wishful thinking," claimed Edison's Phelps. "Our merger proposal is as sound today as it was in the beginning. And we are confident our merger proposal will pass the close regulatory scrutiny, which is only now beginning."

In addition to the FERC hearings that began in Washington D.C. last week, the merger also will be scrutinized by the PUC. The PUC hearings are scheduled to begin in April.

Edison and SDG&E officials point to a chart in a 21-page summary of the DRA report, which states that a merged utility could save up to $1.3 billion. The amount listed in the DRA report contrasts with the utilities' projected savings of $1.7 billion, which would be passed along the customers in the form of lower rates.

"Edison said $1.7 billion and the DRA said $1.3 billion," said Edison vice president Michael Peevey. "That's still a significant amount."

"The applicants (SDG&E and Edison) created this forecast ($1.7 billion) by summing each years' forecasted savings, but they did not take into account the time value of money or an appropriate discount rate," said Phelps, citing the DRA report.

The DRA report also concludes that the merger would not guarantee lower rates for customers after 1993. But merger proponents claim they will be able to prove to the DRA that savings can be realized past that time.

"What the DRA is expressing is that customers won't see all the benefits," said SDG&E's Reed. "They're merely saying that it shouldn't be approved as proposed. They want some kind of assurance... We will sit down with the DRA as soon as possible."

DRA Director Terry Murray said her department is willing to discuss the disputed rate savings with the utilities.

"We're not out there with any ax to grind except the ratepayers' interest," Murray said. "...If there is a new proposal with significant ratepayer benefits, that would be a different story. But we don't see one right now."

On the complex issue of antitrust issues, the DRA report said the merger would bolster Edison's ability to buy bulk power from other utilities but create long-term problems for a handful of small, municipally owned Southern California utilities that import electrical power through Edison's transmission grid.

"Based on what we know so far about DRA's position on anticompetitive issues and access to the transmission system of the merged utilities, again, we believe these issues can be resolved," said Edison's Phelps.